Case Study

Contractors’ Claims in an EPC and Turnkey Contract:

Lessons Learned from a Hydropower Project
Sushmit Sharma Bhattarai 1; Krishna P. Kisi, Ph.D., M.ASCE 2; and Rujan Kayastha 3

Abstract: This study focuses on the contractor’s claims on a hydropower project contracted under an international engineering procurement
Downloaded from ascelibrary.org by The University of Manchester on 12/14/23. Copyright ASCE. For personal use only; all rights reserved.

and construction (EPC) and turnkey contract in Nepal. The contractor faced challenges from the mobilization phase and submitted multiple
claims to the employer for time extensions and additional overhead costs. This study identified 80 claims for a time extension and additional
overhead costs. Through content analysis, this study grouped these claims under six categories: natural disaster, strike, unforeseen risk,
material shortage, payment, and the COVID-19 pandemic. First, the study analyzed the claim type, outcome, and decision criteria of the
claims. Next, the analysis presented decisions based on general conditions of contract (GCC) and the particular conditions of contract (PCC)
clauses. The study found that the employer granted a time extension to most of the claims under natural disaster under force majeure and
rejected most of the claims under the other five groups. Finally, the study presents findings and lessons learned from the case study, including
the relevant GCC and PCC clauses used in claims resolution. The findings and lessons learned from this case study could help employers and
international EPC contractors who want to build hydropower projects in Nepal. DOI: 10.1061/JLADAH.LADR-915. © 2022 American
Society of Civil Engineers.
Author keywords: Claim; Project management; Engineering procurement and construction (EPC); Hydropower project; Silver Book.

Introduction
The construction sector is one of the fastest growing fields today,
and it is defined as complex and high risk, and involves a variety of
stakeholders, including employers, consultants, and contractors.
Similarly, the industry is notable for the high number of claims that
arise regularly because of its unique qualities. Claims—a right
granted to the party who is entitled to recompense for damages suf-
fered by the other party (Simon 1979)—are one of the issues that
a construction project may encounter and can result in a variety
of consequences such as payment delays, time extensions, and
suspension.
Because of the complexity of the construction project and the
variety of claims connected with many stakeholders, choosing a
suitable contracting method can help project stakeholders over-
come obstacles (Schramm et al. 2010). Because of this, the tradi-
tional design-bid-build method has been replaced by several new
and better ways to get projects done, such as construction manage-
ment (CM), design-build (DB), and engineering procurement and
construction (EPC) (Wang and Liu 2021).
EPC contractors, both new and experienced, who opt for lump-
sum or fixed-price agreements have more inherent risks (Thweatt
and Long 2017). Although the employer may use lump-sum or
fixed-price contracts to transfer risks to the contractor, this does not
1
Graduate Assistant, Dept. of Engineering Technology, Texas State
Univ., San Marcos, TX 78666. Email: hsy4@txstate.edu
2
Assistant Professor, Dept. of Engineering Technology, Texas State
Univ., San Marcos, TX 78666 (corresponding author). ORCID: https://
orcid.org/0000-0003-1850-5747. Email: kpkisi@txstate.edu
3
Graduate Assistant, Dept. of Engineering Technology, Texas State
Univ., San Marcos, TX 78666. Email: r_k162@txstate.edu
Note. This manuscript was submitted on June 30, 2022; approved on
October 28, 2022; published online on December 29, 2022. Discussion per-
iod open until May 29, 2023; separate discussions must be submitted for
individual papers. This paper is part of the Journal of Legal Affairs and
Dispute Resolution in Engineering and Construction, © ASCE, ISSN
1943-4162.
eliminate the risk of project failure; project delays and cost over-
runs can have severe effects on the employer. Although the EPC
method leaves additional uncertainties, which could make EPC
projects risky, especially for contractors (Oztas and Okmen
2004), it can help achieve early builder involvement, cost savings,
and shorter project durations than the traditional way (Hale et al.
2009). This does not happen on all EPC projects. As discussed
subsequently, this study collected and analyzed the contractor’s
claims on a hydropower project under an international EPC con-
tract in Nepal that took more than twice the anticipated project
duration to build.
In 2010, Nepal implemented the first EPC approach for the con-
struction of the Upper Trishuli-3A hydropower project (Pun 2014).
Hale et al. (2009) suggested that the EPC approach treated the con-
tractor as a single entity responsible for the design, procurement,
and construction to achieve superior performance in areas such as
early builder involvement, innovation, cost savings, schedule re-
duction, and improved quality. In 2014, another EPC contract
was executed to construct a 111-MW hydropower project in Nepal,
observing that the progress of Upper Trishuli-3A was better than
any other design-bid-build contract. However, several challenges
were faced during the execution of the project, and the contractor
made multiple claims. This study thus focuses on the contractor’s
claims on this second EPC hydropower project.
Since the mobilization of the contractor at the site, the contractor
faced challenges such as riot and disorder by the local public and
landslide blockage on the access road. The contractor submitted
notice letters and later submitted claims against the employer. Most
of the claims were related to extension of time (EoT). This study
examined the contractor’s notice of letter and the employer’s repre-
sentative’s contractual correspondence on the project. This study also
gathered contractor letters and minutes of meetings held throughout
construction from the years 2014 to 2020.
Numerous studies can be found on construction claims and
claims in hydropower projects. Similarly, contractual issues and
causes of delays in hydropower projects have been identified by
several researchers. However, none of the studies have explored

© ASCE 05022011-1 J. Leg. Aff. Dispute Resolut. Eng. Constr.

J. Leg. Aff. Dispute Resolut. Eng. Constr., 2023, 15(2): 05022011

 the claims of the hydropower projects under the EPC contract in
Nepal. This study focuses on a case study to fill the gap in the lit-
erature on claims on international hydropower EPC projects. This
study informs international contractors before bidding on hydro-
power projects in Nepal about the potential types of claims, accep-
tance and rejection decisions, and International Federation of
Consulting Engineers (FIDIC) clauses referenced in the decisions.
Description of the Case Study
The project studied and analyzed in this case study is one of the
largest hydropower projects in Nepal. It is a 111-MW hydropower
Downloaded from ascelibrary.org by The University of Manchester on 12/14/23. Copyright ASCE. For personal use only; all rights reserved.
FIDIC Suite of Contracts
The FIDIC contract suite is produced by the International Feder-
ation of Consulting Engineers. The FIDIC Silver Book, about EPC
and turnkey projects contracts, is used when the contractor not only
takes most of the risk in design and construction but also has to
hand over the project to the employer in a fully operational state
(Shnookal and Charrett 2010). Hosie (2007) states that the FIDIC
Silver Book is followed in response to the recognition of the need
for standardized contract forms when the contract’s final price cer-
tainty and, in many cases, the completion date certainty is of ex-
treme importance.
FIDIC contracts are logical and coherent, with a logical arrange-

project. The employer invited sealed bids for prequalification ment of clauses that have been drafted by independent consulting
from national and international bidders who were interested in engineers and lawyers with experience in the drafting and manage-
undertaking the engineering, procurement, and construction of ment of international construction contracts. FIDIC contracts in-
the project. Eleven out of 20 submitted bidders were selected clude project management procedures essential for the efficient
as prequalified bidders and invited to submit financial competi- execution of the work. A FIDIC contract is not just about docu-
tive bidding. Most of the bidders were from China, India, and menting the contractual entitlements and risk shifting between the
Republic of Korea. The bidding evaluation was conducted as parties; it also provides the framework of the relationship between
per the procedures of the Federal Democratic Republic of Nepal the parties as it occurs on site.
and the employer, as set forth in the bidding documents to the General conditions of contract (GCCs) clauses that are relevant
lowest bidders. to this research study and risk allocation to the employer and the
The project was awarded under an EPC contract to one of contractor are listed in Table 1. Project-specific amendments to
the renowned Chinese contractors after bid evaluation in January FIDIC GCCs are detailed in the project particular conditions of
2014. The employer contracted EPC and turnkey projects with the contract (PCCs). This ensures that any changes that are made to the
Chinese contractor under the FIDIC Silver Book (FIDIC 1999) to standard conditions are obvious and transparent. Insisting on this
carry out civil and hydromechanical works worth USD 97.64 million process maintains the integrity of the FIDIC GCCs and reduces the
including all taxes. As detailed in the FIDIC Silver Book, the em- time for assessing tender documents. It also minimizes the possibil-
ployer hired an international consultant as the employer’s repre- ity that a tenderer might be unaware of a project-specific amend-
sentative. The employer’s representative’s duty was to review the ment that significantly increases the contractor’s risks.
notice of letter submitted by the contractor and take action as and Some provisions in the FIDIC GCCs are incompatible with the
when required. Nepalese governing law of contract and site conditions. Therefore,
The project duration was set to 1,275 days (3 years and EPC projects built in Nepal need PCCs to change the FIDIC GCCs
6 months) from the commencement date of January 2014. The so they are in line with Nepalese law and meet project needs (Dulal
project was expected to be completed in July 2017 according to and Shrestha 2021).
the contractor’s submitted schedule. However, multiple unexpected
events such as an earthquake in Nepal occurred during the con- FIDIC and EPC Contract in Hydropower Project
struction of the project, causing significant delays in completion.
The project has not been completed yet and the current status shows Due to the complexity of the project and the requirements for timely
civil and hydromechanical works at headworks are 95% completed, completion to meet the electricity demand, hydropower projects
whereas concrete lining works of the tunnel are 80% completed.
The project is scheduled to open in April 2023 as per the unaudited
financial report published by the company on October 17, 2022 Table 1. FIDIC general conditions and risk allocation
(RGHPCL 2022). Risk allocation
FIDIC silver
book clause General conditions Employer Contractor
Literature Review 4.1 Contractor’s general obligation — X
4.10 Site data X X
Megaprojects, such as large hydropower projects, are complicated, 4.12 Unforeseeable difficulties — X
with many risks that employers attempt to transfer to contractors 4.13 Rights-of-way and facilities — X
using the EPC contract. In such circumstances, the EPC module 4.14 Avoidance of interference — X
developed as the ideal contemporary method of contracting for em- 4.15 Access route — X
ployers because, with the EPC module, the risks of project man- 4.16 Transport of goods — X
4.23 Contractor’s operations on site — X
agement and many other risks are transferred from the employer to
7.6 Remedial work — X
the contractor (Singh 2000). The EPC approach is becoming more 8.4 Extension of time for completion X —
widely used in international markets (Guo et al. 2010). 8.5 Delay caused by authorities X —
Due to the abundance of water resources in Nepal, hydropower 11.4 Failure to remedy defects — X
projects are one of the country’s major infrastructures, with both do- 14.1 Contract price — X
mestic and foreign investors involved in their construction (Prajapati 14.2 Advance payment X X
2015). In Nepal, large hydropower projects are developed by public 14.3 Application of interim payments — X
entities and generally use the FIDIC suite of contracts, most notably 14.8 Delayed payment X —
the FIDIC Silver Book. The following section provides some rel- 19.2 Notice of force majeure X X
evant information in the literature pertaining to this contracting 19.4 Consequences of force majeure X —
20.1 Contractor’s claims X —
method.

© ASCE 05022011-2 J. Leg. Aff. Dispute Resolut. Eng. Constr.

J. Leg. Aff. Dispute Resolut. Eng. Constr., 2023, 15(2): 05022011

 need a fixed completion date, a fixed completion price, no or limited
technology risk, output guarantees, and liquidated damages for both
delay and performance and security from the contractor, and restric-
tions on the ability of the contractor to claim an EoT and additional
cost (DLA Piper 2011). Chu (1979) pointed out that hydropower
building projects involve many different types of work and the in-
stallation of many different types of structural elements. Chu also
pointed out that underground work often poses a much higher con-
struction risk.
The literature also shows that there are EPC hydropower proj-
ects executed successfully. For example, the 300-MW Chamera
Hydroelectric Project in India that was implemented on a turnkey
Downloaded from ascelibrary.org by The University of Manchester on 12/14/23. Copyright ASCE. For personal use only; all rights reserved.
contract was successfully commissioned due to continuous and
frank communication between the employer and the contractor
and the positive attitude of both sides (Jamwal and Hariharan
2004).
Project Risks in the EPC Contract
Good contracts assign risk to the party who can best manage it.
Within the overall scheme of intended risk allocation, particularly
in respect of design risk, FIDIC contracts aim to be fair and equi-
table by allocating risks to the party best able to control, deal with,
and manage them. The FIDIC 1999 edition somewhat reduced the
contractor’s exposure to certain risks. For example, the definition
of events comprising force majeure was widened to include situa-
tions where the contractor can recover time and money for force
majeure.
Kayastha (2014) reviewed three different cases of hydropower
projects that were constructed under the FIDIC (1999) Red Book
contract in Nepal and highlighted the causes of delay in those proj-
ects, which were site possession, local disruption, unforeseeable
condition, change in scope, and variation.
The concept of implementing a hydropower project under an
EPC and turnkey contract in Nepal has emerged favorably to con-
trol the time, cost, and quality of the project, provide single-point
responsibility, and mitigate delay (Dhungel 2013). Adhikari (2014),
on the other hand, said that the first EPC hydropower project built in
Nepal went over the contract’s time limit.
According to Shen et al. (2017), the main causes of contractor
claims in international EPC projects are external risks (sociopoliti-
cal risks, economic risks, and natural hazards), employers’ organi-
zational behavior (untimely payment, change orders, and inefficient
processing), and project definition in the contract (unclear scope of
works and unclear technical specification); these causes outrun the
contract period.
In summary, several studies have been published regarding the
risks associated with standard conditions of EPC contracts. Bakr
et al. (2008) proposed a structured risk management process to as-
sess various risks in the EPC contract environment. Charoenngam
and Yeh (1999) identified typical construction risks and described
the comparison between FIDIC and the Taiwanese government
conditions of contracting for hydropower construction projects.
Wang and Chou (2003) found that a lot of disagreements can be
caused by the lack of related contract clauses, unclear terms, or
questions about how risk should be shared.
There are also several studies examining time disputes in con-
struction contracts. Iyer et al. (2008) identified the critical clauses
that lead to disputes in construction contracts through extensive case
study research. Picha et al. (2015) mentioned that unclear specifi-
cations or misunderstanding of a contractor’s liability toward the
employer likely lead to disputes. This study examines the contractor
claims on the 111-MW hydropower project built in Nepal.
© ASCE 05022011-3
J. Leg. Aff. Dispute Resolut. Eng. Constr., 2023, 15(2): 05022011
Methodology
This study used a case study approach to identify, explain, and
explore the real phenomenon of the claims. Conducting case stud-
ies is beneficial because it provides empirical inquiry appropriate
to determining the how and why of phenomena and contributes to
understanding phenomena in a holistic and real-life context (Yin
2018).
Creswell (2014) defined case study research as a qualitative ap-
proach in which the investigator explores a real-life, contemporary
bounded system (a case) or multiple bound systems (cases) over
time, through detailed, in-depth data collection involving multiple
sources of information, and reports a case description and case
themes. It places considerable emphasis on process, context, and dis-
covery over outcomes, a specific variable, or confirmation (McLeod
and Laws 2004).
In this case study, the authors used a content analysis method to
identify claims and group them based on the similarity of claims.
Content analysis is a research approach for describing the evident
content of communication in an objective, systematic, and quanti-
tative manner (Berelson 1971). Mayring (2021) explained that
qualitative content analysis can be achieved for recorded commu-
nication, i.e., transcripts of interviews or discourses, protocols of
observation, video tapes, or written documents in general.
All notice of letters and correspondences between the contractor
and the employer were organized in a spreadsheet and qualitative
content analysis was performed on all the correspondences. The
claims were then analyzed based on the duration of resolution and
reason for the decisions with reference to FIDIC clauses and con-
tract documents.
Content Analysis of the Case Study
All notices of contracts submitted by the contractor and answers
from the employer to contractual communication over the time
frame of 2014 to 2020 were evaluated. Those letters were sorted in
Microsoft Excel, and the phrase “notice of claim” was extracted
from all of the letters provided by the contractor and responded
to by the employer’s representative. The study found out 80
“notice of claim” instances submitted by the contractor and ana-
lyzed subsequent correspondence between the employer and the
contractor.
Although there were 80 notices of claim, the claims were gen-
erally related to specific categories. Hence, the claims were grouped
into six categories, such as natural disaster, strike, unforeseen risk,
material shortage, payment issue, and COVID-19 pandemic. These
categories, along with the number of claims, are shown in Fig. 1.
The numbers in Fig. 1 represent the frequency of claims under each
category.
Results and Discussion
In this case study, the contractor submitted 57 natural disaster claims,
10 strike claims, six unforeseen risk claims, three material shortage
claims, three payment issue claims, and one COVID-19 pandemic
claim.
Of those 80 claims, only three were accepted and awarded EoT.
According to data collected and conversation with the project’s
representative, the contractor has accepted all the rejections from
the employer. The contractor has not issued any letters for disputes
nor asked for an alternative dispute resolution process.
J. Leg. Aff. Dispute Resolut. Eng. Constr.
 Natural Disaster (57)
180 days for the storm, and 450 days for flood damage. Regarding
the cost claim, the employer notified the contractor to recover the
cost from the insurance company.
Strike (10)
As shown in Table 2, there were 40 claims related to avalanches
and landslides. After a number of negotiations between the em-
ployer, the employer’s representative, and the contractor, the con-
Unforseen Risk (6) tractor withdrew these claims. The decision was based on GCC
Clause 4.10 (see Table 1 where risk is allocated to the employer
Claims (80) and the contractor), GCC 4.12 (see Table 1 where risk is allocated
Material Shortage (3) to the contractor), GCC 4.15 (see Table 1 where risk is allocated to
the contractor), and GCC 4.23 (Table 1). Similarly, as shown in
Table 2, road blockage (three claims) was rejected and rockfall
and rock avalanche onto access roads (nine claims) were withdrawn
Downloaded from ascelibrary.org by The University of Manchester on 12/14/23. Copyright ASCE. For personal use only; all rights reserved.

Payment Issue (3)

Covid-19 Pandemic
(1)
Fig. 1. Classification of claims.
Natural Disaster Claims
Table 2 summarizes the natural disaster claims, claim time, claim
outcome, and decision criteria to resolve the claims. Most of the
claims under this category were landslides, earthquake, and floods.
For example, one of the major claims of this project was due to a
devastating 7.8 M W earthquake that hit central Nepal on April 25,
2015. The effects of the earthquake were found throughout the
country in major construction projects, including labor shortage and
safety issues after the earthquake in Nepal (Kisi et al. 2020). In the
project, the earthquake damaged structural and nonstructural com-
ponents of the project and two fatalities and 19 injuries occurred.
The access road to the project was seriously damaged because
of strong tremors on an unstable steep slope. The cofferdam, con-
structed at the headworks area, was damaged by the flood due to the
landslide. The project was shut down for almost 30 days.
The contractor claims for EoT and cost compensation under
force majeure as shown in Table 2. While under GCC Clause 19.1
(FIDIC 1999) force majeure has to be “an exceptional event or cir-
cumstance,” it must be beyond the reasonable control of the party.
Most other standard form contracts allocate the time risk to the em-
ployer but leave the cost impact neutral.
Considering those events as force majeure, the employer’s rep-
resentative accepted most of the natural disaster claims and awarded
the EoT. The contractor received 365 days for the earthquake,
by the contractor.
The project site was in the higher Himalayan region and the
earthquake created major cracks that resulted in rock falls and land-
slides during the monsoon period. The storm in 2015 hit hard at the
construction site. Flood damage was severe. The contractor claimed
EoT for all those natural calamities. Considering the impact of the
landslide and the duration of the work stopped under the critical
path of the contractor’s approved schedule, the employer accepted
the EoT claim based on GCC Clauses 8.4, 19.2, 19.4, and 20.1 (see
Table 1 for risk allocation) as shown in Table 2.
Regarding the cost claim, the turnkey credentials of the FIDIC
Silver Book Clause 17.6, “Limitation of Liability,” mention that the
total liability of the contractor to the employer shall not exceed the
sum stated in the particular conditions or the contract price stated in
the contract agreement. In this case study, the contractor’s claim for
the EoT was approved but not cost because of their PCC 17.6,
“Limitation of Liability,” which stated, “The total liability of the
Contractor to the Employer, under or in connection with the
Contract shall not exceed 100% of the Contract Price stated in
the Contract Agreement.”
Strike Claims
Due to not fulfilling the local public demands, such as employment
from the employer and the contractor, the locals obstructed the
project by creating strikes on the project sites. As shown in Table 3,
there were seven claims related to disruption or suspension of works
arising out of riot and disorder by local people.
All the claims related to strikes in this project were rejected.
It took 3 weeks to resolve, and the decision was based on GCC
Clauses 4.14, 8.4, and 19.4 (see Table 1 for the risk allocation).
As a sample of the correspondence, the employer’s decision letters
stated, “It is reported from our Site engineers that activities of the

Table 2. Natural disaster claims

No of
Description claims Claim type Outcome Decision criteria
Avalanche and landslide blockage on public 40 Time Negotiated and withdrawn FIDIC Clauses 4.10, 4.12, 4.15, 4.23
highway, headworks camp and fuel depot, tunnel
portals of aeration and access tunnels valve chamber
at access roads, powerhouse camp
Road blockage, bridge collapse of main highway 3 Time Rejected FIDIC Clause 4.12
Devastating earthquake of April 25, 2015 1 Time and cost Extension of time granted for FIDIC Clauses 8.4, 19.2, 19.4, 20.1
365 days but no additional cost
Storm on March 23, 2015 1 Time and cost Extension of time granted for FIDIC Clauses 19.2, 19.4, 20.1
180 days but no additional cost
Rockfall and rock avalanche onto access roads, 9 Time Withdrawn FIDIC Clauses 4.10, 4.15, 4.23, 7.6
intake slope
Flood damage to foundation of bridge and 3 Time and cost Extension of time granted for FIDIC Clauses 8.4, 8.5, 19.4, 20.1
cofferdam washed away, 2018 450 days but no additional cost

© ASCE 05022011-4 J. Leg. Aff. Dispute Resolut. Eng. Constr.

J. Leg. Aff. Dispute Resolut. Eng. Constr., 2023, 15(2): 05022011

 Table 3. Strike claims
Description No of claims Claim type Outcome Decision criteria
Disruption or suspension of works arising out of riot 7 Time Rejected FIDIC Clauses 4.14, 8.4, 19.4
and disorder by local people at the project district
National strike called by political party 1 Time Rejected Contractor’s daily record and
Road congestion due to riots of local drivers 1 Time Rejected FIDIC Clause 4.14
Strike of truck drivers in Nepal 1 Time Rejected

Contractor were not significantly hampered due to the strike called However, the employer’s representative rejected those claims regard-
by local people, and we appreciate the effort of the Contractor re- ing GCC Clause 4.12, PCC Subclause 7.9, and GCC Clause 4.16.
garding his patience and good coordination with the local people. PCC Subclause 7.9, “Sufficient Stock of Materials,” in the con-
Downloaded from ascelibrary.org by The University of Manchester on 12/14/23. Copyright ASCE. For personal use only; all rights reserved.

The Contractor is requested to maintain the detailed contemporary
records of the event which is preventing the Contractor from com-
plying with his obligation under the Contract.” From this response,
it is noted that although the strike happened, the contractor’s work
continued without affecting the contractor’s schedule.
There were other strikes called by different parties, such as
equipment operators, but the employer argued that the strike did
not directly hamper the project activities and thus was rejected.
Unforeseen Risk Claims
Unforeseen geological conditions and problems such as cracks at
the underground powerhouse, a sinkhole at the tailrace, unfavorable
rock in the tailrace tunnel, sand layer in headworks, geological col-
lapse in the surge shaft, and cavities occurred on the project site.
The contractor submitted claims under these circumstances, but the
employer rejected these claims by referring to GCC clauses as
shown in Table 4.
For example, the employer denied claims regarding an unfore-
seen sand layer accumulated at headworks based on the responsibil-
ities and risks allocated to the contractor under GCC Clauses 4.12,
4.13, 4.15, and 7.6 (see Table 1 for risk allocation). GCC Clause
4.12 states that the contractor shall be deemed to have obtained
all necessary information as to risks, contingencies, and other cir-
cumstances that may influence or affect the work. It also mentions
that the cost should not be adjusted in these situations. GCC Clause
4.13 emphasizes the contractor being the party to take responsibility
and risk associated with the rights-of-way and facilities.
Material Shortage Claims
The contractor claimed material shortages due to unavailability of
materials delayed the progress of the work as detailed in Table 5.
tract clearly stated, “Due to climatic and geological conditions dur-
ing the wet season the Contractor may encounter problems with
access to the Site. Therefore, having regard to Nepal being land-
locked, the remoteness of the Site, and climatic and geological
conditions, the Contractor shall at all times plan and arrange for
sufficient stock of major materials, which include, but are not lim-
ited to, cement, explosives, detonators, reinforcing steel bars, rock
support materials, fuel, to provide uninterrupted operations. Fail-
ure to provide sufficient stock at Site or shortage of materials shall
be in no case the reasons of a claim for extension of time.” This
PCC contract clause clearly shifted the risk of material shortages to
the Contractor and gave the employer an easy way to deny these
contractor’s claims.
Payment Claims
The contractor submitted three claims for payment issues related
to delays in interim payment, delay in release of advance payment,
insurance for an extended period, and value-added tax (VAT) as
shown in Table 6.
The outcome and decision criteria are summarized in Table 6.
Based on GCC Clause 14.3, “Application for Interim Payment,” the
employer responded to the contractor that they did not submit the
requirement as stated in the clause, such as using the form approved
by the employer. The contractor waived the delayed disbursement
of the interim payment of milestone by stating, “Considering the
mutual understanding and cooperative support to the other party, the
Contractor would waive the claims on the financial charges and
costs against IPS No.2, and only keep records of delayed time of
38 days.” Similarly, the contractor also waived for delayed disburse-
ment of advanced payment by stating, “we would waive Claim on
financial charges and costs against Delayed Advanced Payment.”
The employer established a standard structure for payment forms,

Table 4. Unforeseen risk claims

No of Claim
Description claims type Outcome Decision criteria
Cracks treatment at downstream sidewall at powerhouse 1 Time Rejected FIDIC Clauses 4.1, 4.12, 11.4
Additional works arising from sinkhole treatment above tailrace tunnel 1 Time Rejected FIDIC Clauses 4.1, 4.10, 7.6
Unforeseeable geological conditions at tailrace tunnel 1 Time Rejected FIDIC Clauses 4.12, 4.13, 7.6
Unforeseen sand layer accumulated at headworks 1 Time Withdrawn FIDIC Clauses 4.12, 4.13, 4.15, 7.6
Geological collapse above aeration tunnel of surge shaft 1 Time Rejected FIDIC Clause 4.12
Unforeseeable difficulties arising from huge cavities at tailrace tunnel 1 Time Rejected FIDIC Clause 4.12

Table 5. Material shortage

Description No. of claims Claim type Outcome Decision criteria
Shortage of cement in the market 2 Time Withdrawn FIDIC Clause 4.12, PCC Subclause 7.9
Explosive material issue 1 Time Withdrawn FIDIC Clause 4.16

© ASCE 05022011-5 J. Leg. Aff. Dispute Resolut. Eng. Constr.

J. Leg. Aff. Dispute Resolut. Eng. Constr., 2023, 15(2): 05022011

 Table 6. Payment issue
Description No. of claims
Delayed disbursement of interim payment 1 Time and cost
Delayed release of advance payment 1 Time and cost
Compensation arising from damaged structure 1 Time and cost
with which the contractor did not adhere, resulting in a delay in
approval. The contractor’s claim for delay was due to their own er-
ror, which the contractor eventually waived.
The compensation claim for the damaged structure was rejected,
Downloaded from ascelibrary.org by The University of Manchester on 12/14/23. Copyright ASCE. For personal use only; all rights reserved.
stating the claim was a repetition of earthquake damage. Other
claims related to payment were rejected for similar reasons.
COVID-19 Pandemic Claim
Although the COVID-19 pandemic affected the project and added
additional delays, this study does not present any data due to un-
availability of the details.
Lessons Learned
A turnkey solution is not as simple as it sounds because of the inevi-
table complexities of large projects and the decreased contractors’
risk appetite in the global project arena. Contractors prefer projects
where they need to carry the least risk and gain the most profit.
Thus, when negotiating contracts, they seek exclusions from signifi-
cant caps on liability. Employers also look for ways to put all the
risks on the contractors and simultaneously lower the project cost.
EPC and turnkey projects are difficult types of contracts from
the contractor’s perspective because most of the risk is transferred
to the contractor, as seen in this case study. For example, the con-
tractor’s claims, such as strike (Table 3), unforeseen risk (Table 4),
and material shortage (Table 5) were rejected, or the contractor had
to withdraw their claims because of the way the contract mentioned
the allocation of risk.
After reviewing the literature and the FIDIC Silver Book GCC
clauses of the EPC or turnkey contract, it is clear that the GCC
clauses give a balance of risk to both parties, such as the contractor
and the employer, while also guiding the employer on how to alter
the PCC as needed. In this case study, the employer modified PCC
clauses as per their comfort and transferred most of the risks to the
contractor, including transferring risk to the contractor based on
geological and climate history.
The case study analysis shows that the contractor lost their
claims due to poor risk analysis, poor evaluation of the GCC of the
FIDIC Silver Book, and project-specific PCC. For example, the out-
comes in Tables 2–6 show that most of the rejected claims reflect
this poor risk management and the contractor’s poor evaluation of
GCC and PCC. Most natural disaster claims, such as earthquakes,
were granted time extensions only under force majeure. However,
the employer rejected many claims under other groups based on the
GCC and PCC clauses. As explained previously, the employer trans-
ferred risk to the contractor through PCC. However, the contractor
did not emphasize that PCC during bidding or interpreted it differ-
ently, which led to the rejection of claims. This rejection shows that
the contractor needed to perform proper risk analysis and assess-
ment. For example, the contractor could perform a risk analysis of
the layout and surface geology and propose a baseline report to
negotiate with the employer. This baseline report could be beneficial
for the remeasurement and adjustment of contractual construction
and time.
© ASCE 05022011-6
J. Leg. Aff. Dispute Resolut. Eng. Constr., 2023, 15(2): 05022011
Claim type Outcome Decision criteria
Waived by contractor FIDIC Clause 14.3
Waived by contractor FIDIC Clause 14.2
Rejected FIDIC Clause 14.1
This scenario alludes to the observation made by Low et al.
(2008) that the practice of holistic risk management in Chinese
firms is indeed low and that formal risk management is not in place.
A similar resemblance was made by Liu et al. (2007), who noted
that the practice and knowledge of risk management in most
Chinese construction firms is lower than in their home market and
that holistic risk management is not a priority in their management
strategies.
The contract documents can address inherent risks in performing
EPC and turnkey projects in developing countries. Typically, em-
ployers seek to transfer all risk to the contractor by modifying PCC
rather than use the fair risk-neutral contract of the FIDIC Silver
Book. Therefore, it is a lesson for future EPC hydropower projects
that the contractor should carefully analyze the differences in the
clauses, vet the contract carefully, and visualize how those modifi-
cations could impact the cost and time of the project during ex-
ecution. EPC contractors, for example, should review the history of
natural disasters and the project location’s geological and climatic
conditions and account for these risks in the PCCs or contract price.
The following are additional lessons learned from this case
study:
1. There is a risk of natural disasters and weather interruptions to
the work that affects the time and cost of the project. In this case
study, the contractor filed the largest number of claims related
to force majeure. For example, Table 2 shows that the contrac-
tor claimed additional time and cost due to disruption from natu-
ral disasters. The contractor did receive EoT but no additional
compensation. As shown in Table 2, the EoT was granted for
365 days (1 year) regarding the damages due to the earthquake,
but the cost was not granted based on the contract’s PCC Clause
17.6, “Limitation of Liability:” The total liability of the Contrac-
tor to the Employer, under or in connection with the Contract
shall not exceed 100% of the Contract Price stated in the Con-
tract Agreement.” Because the definition of events comprising
force majeure was broadened in FIDIC (1999), where the con-
tractor can recover time and money for force majeure, the con-
tractor could perform risk analysis to clarify and negotiate with
the employer for the modification of clauses in the PCC. As
a lesson learned, the contract document should clearly define
unusually severe weather and define which party is responsible
for that risk because adverse weather conditions may not be se-
vere enough to qualify as force majeure events but may be se-
vere enough to stop the work.
2. Strike and local disruption risks are likely to occur in developing
countries. This situation is challenging and risky in the EPC
project where a delay is critical to the contractor. In this case
study, the contractor faced many challenges due to strikes and
disruption by local people. In this type of situation, addressing
the issues proactively by bringing them to the table for resolu-
tion earlier is a better approach, but most important is docu-
menting the discussion and resolution with the local people. As
shown in Table 3, the contractor claimed for disruption or sus-
pension of works caused by riot and disorder by local people
but could not provide supportive evidence. According to GCC
Clause 4.14, avoidance of interference, the contractor shall in-
demnify and hold the employer harmless for all damages, losses,
J. Leg. Aff. Dispute Resolut. Eng. Constr.
 and expenses incurred as a result of any such unnecessary or
improper interference. The contractor could have taken advan-
tage of the clause modification in PCC where the contractor
could ask for provision or consideration if they could prove that
those events prevented the contractor from complying with their
obligation under the contract.
3. The unforeseeable risk may significantly impact the project cost
and schedule. Both disputing parties experienced impacts due to
the significant EoT and additional overhead costs. For example,
the employer granted 450 days to address the damage caused by
the flood and 365 days to deal with the earthquake disruption
(Table 2). These events were not only unforeseen but also sig-
nificant events that delayed the project almost twice the original
Downloaded from ascelibrary.org by The University of Manchester on 12/14/23. Copyright ASCE. For personal use only; all rights reserved.
project duration. Similarly, the project consisted of different un-
derground structures such as tunnels, underground powerhouses,
and foundations of the weir and under the sluice. Because of the
multiple subsurface components, there was always the risk of
uncertainty. As a lesson learned, the FIDIC GCCs such as Clause
4.11, “Sufficiency of the Contract Price,” and Clause 4.12,
“Unforeseeable Difficulties,” that put risks on contractors could
be modified using PCCs so the contract could be completed
smoothly with minimum claims. The contractor could perform
risk analysis and negotiate with the employer in GCC Clause
4.14 to benefit both parties.
Conclusions
This case study discussed the claims and relevant FIDIC clauses
in one of Nepal’s most significant hydropower projects executed
under the EPC or turnkey contract with the Chinese contractor.
In this study, literature review, review of claims, and letter corre-
spondence between the contractor and the employer showed several
recurring claims in this EPC project. These claims were categorized
into six groups: natural disaster, strike, unforeseen risk, material
shortage, payment, and COVID-19 pandemic claims. The contrac-
tor primarily sought out EoT and overhead costs. As a result, the
employer approved most claims under natural disasters such as
earthquakes for time extension only under force majeure. However,
the employer rejected most of the claims under the other five groups
based on the GCC and PCC clauses. Moreover, the contractor
agreed with the employer’s decisions and has not disputed them
further. As mentioned in “Lessons Learned,” the literature also
supports a lack of risk management among Chinese contractors
(Low et al. 2008; Liu et al. 2007).
Although the project duration in this case study was 3 years and
6 months, started in January 2014, the project went through signifi-
cant delay due to the contractor’s EoT and overhead cost claims.
The project is scheduled to open in January 2023, about 5 years
late. Working on the same project for that long, utilizing all their
skilled and unskilled workforce, was not beneficial to the reputed
international contractor. The delay was not beneficial to the em-
ployer either. This project was meant to serve the public by provid-
ing electricity, but the delay in its completion has impacted the
targeted people.
This case study described project delay risks that occurred to
the contractor, who was the favored bidder for an EPC and turnkey
hydropower project in Nepal. Based on the analyses, the authors
found that there are primarily natural disasters and strike claims
in the international EPC hydropower project in Nepal. The findings
also show that the contractor (Chinese) lacked proper risk manage-
ment and misunderstood the contract clauses.
The findings from the project aligned with some of the previous
study findings that led to claims. For instance, lack of proper risk
© ASCE 05022011-7
J. Leg. Aff. Dispute Resolut. Eng. Constr., 2023, 15(2): 05022011
management (Bakr et al. 2008; Liu et al. 2007), absence of related
contract clauses and fairness of risk allocation (Wang and Chou
2003), and misunderstanding of the contractor’s liability toward the
client (Picha et al. 2015) were found in this project as well. There-
fore, the findings and lessons learned of this case study could help
employers and EPC contractors, especially Chinese contractors, who
want to conduct their international hydropower project in Nepal.
Although the study findings are based on the case study in Nepal,
the lessons learned can be helpful to international contractors who
want to do EPC hydropower projects in countries that are prone to
natural hazards.
Data Availability Statement
All data used during the study are available from the corresponding
author by request.
Acknowledgments
The authors acknowledge the assistance of the project’s employees
and express special thanks to the contract manager for providing
valuable input to this research.
References
Works Cited
Adhikari, P. 2014. “Risk and responsibilities of EPC contract.” Accessed
July 25, 2022. https://www.nea.org.np/admin/assets/uploads/supportive
_docs/Vidyut-2070-Falgun-24.pdf.
Bakr, A. F., K. E. Hagla, and A. N. Rawash. 2008. “Heuristic approach
for risk assessment modeling: EPCCM application (engineer procure
construct contract management).” Alexandria Eng. J. 51 (4): 305–323.
https://doi.org/10.1016/j.aej.2012.09.001.
Berelson, B. R. 1971. Content analysis in communication research.
New York: Hafner.
Charoenngam, C., and C. Y. Yeh. 1999. “Contractual risk and liability sharing
in hydropower construction.” Int. J. Project. Manage. 17 (1): 29–37.
https://doi.org/10.1016/S0263-7863(97)00064-1.
Chu, S. L. 1979. Tunnel engineering. 3rd ed. Taiwan: Technical Press.
Creswell, J. W. 2014. Research design: Qualitative, quantitative and mixed
methods approaches. 4th ed. Thousand Oaks, CA: SAGE.
Dhungel, S. K. 2013. “Relevance of EPC contracts in hydropower project.”
Accessed July 25, 2022. https://www.nea.org.np/admin/assets/uploads
/supportive_docs/Vidyut%20Halfyearly%20Year%2024%20Issue1%20
new%20.pdf.
DLA Piper. 2011. “EPC contracts in the power sector, Asia Pacific proj-
ects update.” Accessed July 13, 2022. https://www.slideshare.net
/raghunathanjanarthanan/epc-contractsinthepowersector.
Dulal, T. P., and H. R. Shrestha. 2021. Applying FIDIC contracts in Nepal
in FIDIC contracts in Asia Pacific: A practical guide to application.
Edited by D. Charrett, 379–410. London: Informa Law from Routledge.
https://doi.org/10.4324/9781003200901.
FIDIC (International Federation of Consulting Engineers). 1999. Condi-
tions of contract for EPC/turnkey projects. 1st ed. Geneva: FIDIC.
Guo, Q., Z. P. Xu, G. F. Zhang, and T. T. Tu. 2010. “Comparative analysis
between the EPC contract mode and the traditional mode based on the
transaction cost theory.” In Proc., IEEE 17th Int. Conf. on Industrial
Engineering and Engineering Management, 191–195. New York: IEEE.
Hale, D. R., P. P. Shrestha, G. E. Gibson Jr., and G. C. Migliaccio. 2009.
“Empirical comparison of design/build and design/bid/build project de-
livery methods.” J. Constr. Eng. Manage. 135 (Jul): 579–587. https://
doi.org/10.1061/(ASCE)CO.1943-7862.0000017.
J. Leg. Aff. Dispute Resolut. Eng. Constr.
 Hosie, J. 2007. Turnkey contracting under the FIDIC Silver Book: What do
employers want? What do they get? London: International Federation of
Consulting Engineers.
Iyer, K. C., N. B. Chaphalkar, and G. A. Joshi. 2008. “Understanding time
delay disputes in construction contracts.” Int. J. Project Manage. 26 (2):
174–184. https://doi.org/10.1016/j.ijproman.2007.05.002.
Jamwal, S. S., and K. Hariharan. 2004. “Effective management of turnkey
execution of Chamera Hydroelectric Project, stage-III—Contractual
aspects.” Water Energy Int. 61 (1): 48–54.
Kayastha, G. 2014. “Importance of contract administration for timely
construction of hydropower projects without disputes.” Hydro Nepal:
J. Water Energy Environ. 14 (Oct): 49–51. https://doi.org/10.3126/hn
.v14i0.11265.
Kisi, K. P., K. J. Shrestha, and R. Kayastha. 2020. “Labor shortage and
Downloaded from ascelibrary.org by The University of Manchester on 12/14/23. Copyright ASCE. For personal use only; all rights reserved.
safety issues in postearthquake building construction: Case study.”
J. Leg. Aff. Dispute Resolut. Eng. Constr. 12 (3): 05020011. https://doi
.org/10.1061/(ASCE)LA.1943-4170.0000386.
Liu, J., B. Li, B. Lin, and V. Nguyen. 2007. “Key issues and challenges of
risk management and insurance in China’s construction industry: An
empirical study.” Ind. Manage. Data Syst. 107 (3): 382–396. https://doi
.org/10.1108/02635570710734280.
Low, S. P., J. Y. Liu, and S. Q. He. 2008. “Management of external risks:
Case study of a Chinese construction firm at infancy stage in Singapore.”
Int. J. Construct. Manage. 8 (2): 1–15. https://doi.org/10.1080/15623599
.2008.10773112.
Mayring, P. 2021. Qualitative content analysis a step-by-step guide. Thousand
Oaks, CA: SAGE.
McLeod, R., and K. Laws. 2004. “Case study and grounded theory: Sharing
some alternative qualitative research methodologies with systems pro-
fessionals.” In Vol. 78 of Proc., 22nd Int. Conf. of the Systems Dynamics
Society, 1–25. Oxford, UK: Keble College.
Oztas, A., and O. Okmen. 2004. “Risk analysis in fixed-price design–build
construction projects.” Build. Environ. 39 (2): 229–237. https://doi.org
/10.1016/j.buildenv.2003.08.018.
Picha, J., A. Tomek, and H. Löwitt. 2015. “Application of EPC contracts
in international power projects.” Procedia Eng. 123 (Aug): 397–404.
https://doi.org/10.1016/j.proeng.2015.10.061.
© ASCE 05022011-8
J. Leg. Aff. Dispute Resolut. Eng. Constr., 2023, 15(2): 05022011
Prajapati, R. N. 2015. “Delineation of run of river hydropower potential
of Karnali basin-Nepal using GIS and HEC-HMS.” Eur. J. Adv. Eng.
Technol. 2 (1): 50–54.
Pun, S. 2014. “The 60 versus 90 MW battle over Upper Trishuli-3A The
victors and the vanquished classic case of throwing the baby out with the
bathwater!” Hydro Nepal: J. Water Energy Environ. 13 (Aug): 8–15.
https://doi.org/10.3126/hn.v13i0.11381.
RGHPCL (Rasuwagadhi Hydropower Company Limited). 2022. “Unaudited
financial statement FY 2022/23.” Accessed December 12, 2022. https://
rghpcl.com.np/images/supportive_docs/RGHPCL_UnauditedFinancial
Statement_079_80_Q1.jpg.
Schramm, C., A. Meißner, and G. Weidinger. 2010. “Contracting strategies
in the oil and gas industry.” Pipeline Technol. 2010: 33–36.
Shen, W., W. Tang, W. Yu, C. F. Duffield, F. K. P. Hui, Y. Wei, and J. Fang.
2017. “Causes of contractors’ claims in international engineering-
procurement-construction projects.” J. Civ. Eng. Manage. 23 (6): 727–739.
https://doi.org/10.3846/13923730.2017.1281839.
Shnookal, T., and D. Charrett. 2010. “Standard form contracting; the role
for FIDIC contracts domestically and internationally.” In Vol. 30 of
Proc., Society of Construction Law Conf. Sydney, NSW, Australia:
Society of Construction Law Australia.
Simon, M. 1979. Construction contracts and claims. New York:
McGraw-Hill.
Singh, S. 2000. “Dispute in EPC contracts.” Accessed July 28, 2022.
https://www.legalserviceindia.com/legal/article-3638-dispute-in-epc
-contracts.html.
Thweatt, W. T., and R. J. Long. 2017. EPC contract risk analysis associ-
ated with onshore projects in developing countries. Littleton, CO: Long
International.
Wang, M.-T., and H.-Y. Chou. 2003. “Risk allocation and risk handling of
highway projects in Taiwan.” J. Manage. Eng. 19 (2): 60–68. https://doi
.org/10.1061/(ASCE)0742-597X(2003)19:2(60).
Wang, S., and X. Liu. 2021. “Development of EPC model in Chinese
public projects: Evolutionary game among stakeholders.” J. Asian Archit.
Build. Eng. 21 (5): 2095–2113. https://doi.org/10.1080/13467581.2021
.1971681.
Yin, R. K. 2018. Case study research and applications: Design and methods.
6th ed. Thousand Oaks, CA: SAGE.
J. Leg. Aff. Dispute Resolut. Eng. Constr.